Inside Bar, Technical Analysis Scanner

technical analysis

Like all other popular candlestick patterns, inside bars can be very a powerful tool for technical traders when analyzed and traded in the right ways. Despite being peculiar and different to some other candlestick patterns, inside bars are just as reliable and useful as any other candlestick pattern. Instead, we have a strong bearish candlestick present itself first which indicates selling coming into the market. That bearish candlestick than follows an inside bar, again at that same key resistance level which now just acts as additional confirmation to the lack of bullish strength in the market.

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This means more traders were actively involved in its formation. The inside bar pattern can be a very powerful price action signal if you understand how to trade it properly. Matching lows and highs are acceptable, however, the inside bar’s range must not be outside of the mother candle by even 1 point. For more information on trading inside bars and other price action patterns, click here.

An inside bar that forms on the higher time frame has more “weight” simply because the pattern took more time to form. This means more traders were actively involved in its formation, which as a result equals higher capital flows. There’s no doubt that inside bars can be a profitable way to trade the Forex market, equity, commodity or any other market. After all, it’s a setup that it teaches as part of the price action course and one that has served extremely well. The great thing about inside bar candlestick patterns is that they provide visual evidence that the market has contracted and may be ready to reverse the current trend.

The stop can be not one candle, but several – a double or triple inside bar. In my experience, the smaller the inside bar is relative to the mother bar, the greater your chances are of experiencing a profitable trade setup. Ideally, we want to see the inside bar form within the upper or lower half of the mother bar. If using the more aggressive stop loss strategy, this means selecting inside bars that form near the upper or lower range of the mother bar. This allows you to achieve a much more favorable risk to reward ratio. As you may well know, markets spend most of their time consolidating or ranging, so finding a favorable inside bar setup within a trending market can be a challenge.

Inside and outside bars in trading – how to read and trade

When viewed on smaller timeframes, inside bars look like converging formations, often in the form of a triangle. When an inside bar appears on large timeframes , it is recommended to switch to lower periods and monitor the breakdown of the triangle . The inside bar setup is capable of producing consistent profits, but only to the traders who mind the five characteristics discussed above. However, it isn’t a setup that occurs often, at least not in a favorable context.

  • When talking about inside bars, traders prefer to mention the ‘break’ of the inside bar which is price moving either beyond the high or the low of the inside bar.
  • Test your knowledge of forex patterns with our interactive ‘Forex Trading Patterns’ quiz.
  • (We discussed this in our Member’s videos every day at MarketLife.) While this might have put us on guard, it wasn’t enough to trigger trades.
  • Even if you do not trade this setup, it can be used as a confirmation when used in conjunction with another trading system.
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Seek the advice of a qualified finance professional before making any investment and do your own research to understand all risks before investing or trading. TrueLiving Media LLC and Hugh Kimura accept no liability whatsoever for any direct or consequential loss arising from any use of this information. The key is to be able to understand which levels are most likely to hold and which ones are just random lines on a chart. This is what a choppy price action signal might look like. As you can see, there were several large back-and-forth bars before this Inside Bar printed.

Recommendations for trading inside bars

Truth is, a favorable inside bar setup doesn’t come around often. Of the price action strategies we use here at Daily Price Action, the inside bar is the least common. The inside bar setup is capable of producing consistent profits, but only to the traders who mind the six characteristics discussed above. This causes the market to pull back, where new buyers have to take charge in and buy, which keeps prices elevated.

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When looking for these types of trades, you first want to identify a strong trend. You can use moving averages, a momentum indicator, or simply just look a the price action to see strength of the trend. These breakouts tend to be short-lived signals, so it’s not easy to make longer-term forecasts based on this pattern.

As price falls into solid long term support, an informed technical trader should not be surprised to see a potential bounce off the area. What then does indecision, as represented by the marked inside bar tell us about the bearish momentum that lead us to this support level? As the inside bar breaks to the upside we have price finding support at the level which should really not be a surprise at all. Notice also that instead of just temporary holdup, the inside bar did trigger the reversal of much of the bearish trend up until that point. The opposite wall in the living room features a wet bar that includes two full-sized wine refrigerators, sink, storage cabinets, and shelving, as well as plenty of open floor space to entertain. The tall dark blue painted cabinetry helps to visually balance the room, as a large, bold design element opposite the fireplace wall.

What is an Outside Bar

As the name suggests, an inside bar chart pattern engulfs the inside of a large candle, some call it a mother bar. Inside bars typically offer good risk reward ratios because they often provide a tight stop loss placement and lead to a strong breakout as price breaks up or down from the pattern. Here’s another example of trading an inside bar against the recent trend / momentum and from a key chart level. In this case, we were trading an inside bar reversal signal from a key level of resistance. Also, note that the inside bar sell signal in the example below actually had two bars within the same mother bar, this is perfectly fine and is something you will see sometimes on the charts.

  • If the mother bar has a weak body then it might not be very sure to trade in it.
  • There are 2 basic types of Inside Bars that traders use to enter trades.
  • Only bars at the top or bottom of the movement are considered – we are looking for a reversal.
  • As in general, any time frame less than the daily chart should be avoided with this strategy.

The best inside bar setups form just after a breakout from a preceding pattern. In a trend, the consolidation is triggered when longs decide to begin taking profits . If you are planning to trade based on an inside bar candlestick pattern, then you should always look for a market trend. This strategy does not work in a choppy market or sideways market as you will be easily stopped out. An inside bar that forms on the higher time frame has more “relevant” simply because the pattern took more time to form.

Inside Bars royalty-free images

In the example below, we are looking at trading an inside bar pattern against the dominant daily chart trend. In this case, price had come back down to test a key support level , formed a pin bar reversal at that support, followed by an inside bar reversal. Note the strong push higher that unfolded following this inside bar setup. Another aggressive approach to trade inside bars is to often place pending entry orders a few ticks above the high as well as below the low of the inside bar to take advantage of a break of either side. This strategy would normally apply to more neutral inside bars that may not necessarily support a bearish or a bullish setup. Again this aggressive approach is perhaps best suited to professional traders who possess strong skills when it comes to trading sideways indecisive markets and market action.

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If the mother bar has a weak body then it might not be very sure to trade in it. The body and the size of the mother bar are extremely important, and if the size of the inside bar is small compared to the mother bar it can help you to generate much better results. From there, if you’re happy with the results, you can make the decision to start trading the strategy live.

You should not trade if the inside bar has long shadows – doji or pinbar. As the name implies, an inside bar forms inside of a large candle called a mother bar. It’s a pattern that forms after a large move in the market and represents a period of consolidation. This is why trading this pattern can be so profitable – you are essentially buying or selling a breakout, or continuation of the preceding trend. For newer traders, perhaps the best approach is to treat inside bars like any other candlestick pattern – that is, locate them at key areas on the chart and trade them conservatively.

Only bars at the top or bottom of the movement are considered – we are looking for a reversal. On smaller timeframes, the outside bar is a diverging triangle. Usually this is a signal of high unpredictability of the market, it is a signal to reduce risk or to exit the position. Price Data sourced from NSE feed, price updates are near real-time, unless indicated. Financial data sourced from CMOTS Internet Technologies Pvt.

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Some traders like to use multiple moving averages to define a trend. They usually use 2-3 moving averages and when they are in order from shortest to longest period, that call that a valid trend. See what this signal can do for your market analysis and chart reading. Inside bars are bars where the high is below the previous high and the low is above the previous low; the range of the bar is completely inside the previous bar’s range. They generally show consolidation and often bring no new technical information to the table. Enter Break of Engulfing Larger Candle Inside Candle method is a great short term consolidation indicator.

This sideways is it possible to make a living trading stocks action represents consolidation, which is what you want to avoid when evaluating an inside bar setup. First and foremost, the time frame you use to trade inside bars is extremely important. As a general rule, any time frame less than the daily should be avoided with this strategy. This is because the lower time frames are influenced by “noise” and therefore produce false signals. Below is a great example of a bullish inside bar pattern that formed on the Hindustan Unilever daily time frame. This is actually a trade setup that was called here at Daily Price Action and has worked out beautifully thus far.

Notice how the bullish inside bar in the above illustration formed at the top of the mother bar’s range. This is what you want to see in a favorable setup, especially if you are using the more aggressive stop loss placement, which means placing your stop loss below the inside bar rather than the mother bar. If you have been trading for any length of time I’m sure you have heard this one many times. As common as this saying may be, it has never lost its significance in the financial markets, especially when it comes to trading inside bars.

Inside bars work best on the daily chart time frame, primarily because on lower time frames there are just too many inside bars and many of them are meaningless and lead to false breaks. The other type of Inside Bar trading signal is the countertrend Inside Bar. This type of Inside Bar appears at support and resistance levels. Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer.

bars and engulfing

In other words, the Inside Bar has a higher low and lower high than the previous bar. When this happens the previous bar is known as the mother bar. It does not matter if the Inside Bar is bullish or bearish, all that matters is where the Inside Bar prints relative to existing price action. In this case, we had a long bull flag that was in the process of perhaps breaking down. It had gone on a bit “too long” and was challenging the downside boundary of the pattern. (We discussed this in our Member’s videos every day at MarketLife.) While this might have put us on guard, it wasn’t enough to trigger trades.

There are several ways to https://1investing.in/ inside bars that stem directly from the trader’s individual risk appetite and possibly the overall strength of the setup itself. If I’m asked about what is the most interesting part for inside bar trade, my answer is “trailing”. 1st kick is only for risk management purpose to make me able to deposit the risk to other trades, the outstanding risk-reward ratio is about the other half of the positions. The other half is very important so I need it to run as much as possible, so I NEVER put… It is possible to make a reversal trade at the top of the market or use the pyramiding strategy when trading with the trend. Stop loss should be placed behind the nearest level behind the extremum of the inside bar or the mother candle.

Trading a supposed inside bar at a swing high here could potentially be dangerous as it can be hard to pinpoint an exact price level representing key resistance here. Since inside bars appear smaller in shape as opposed to big protruding pin bars and engulfing bars, traders often believe inside bars can be a poor indicator of trend reversal. This may be true to an extent, if you once again look at inside bars for what they are worth. While pin bars and engulfing candlesticks will often incorporate opposing order flow within themselves to provide more information, inside bars merely represent indecision. Alternatively, inside bars can also point to periods of consolidation, and indecision prior to a pending breakout. Inside bar refers to a candlestick pattern that consists of two candlesticks in which the most recent candlestick will form within the range of the previous candle.


To get more practice, draw major levels on all of your charts, then go back to them later and see if price ended up respecting those levels. After a few weeks of this exercise, you’ll start to get the hang of it. Keep in mind that you can make almost any line fit some sort of trend or support/resistance level. Try it…just draw a random horizontal line somewhere on your chart.

While a tighter stop loss can drastically improve the risk to reward ratio for a trade it also makes the trade more likely to be succumbed to volatile market moves, especially in a sideways market. Traders often attempt to build automated trading strategies for inside bar breakouts or otherwise try to manually exploit the fact they are a common occurrence in the market as shown above. Such strategies do not usually pan out well in the long term as the market transitions into a different phase perhaps requiring a varied approach to trading inside bars. We go into the actual trading strategies for inside bars a little later.